on Corporations and
Inquiry into Corporate
11 October 2005
Table of Contents
Parliamentary Joint Committee
on Corporations and Financial Services
Inquiry into Corporate Responsibility----------------------------------------------------------1
1. Executive summary------------------------------------------------------------------------------- 1
2. Background----------------------------------------------------------------------------------------- 2
2.1 What is corporate responsibility?...................................................................................2
2.2 What is triple bottom line reporting?..............................................................................3
3. Australia’s banks and corporate responsibility-----------------------------------------4
3.1 Do corporate decision makers have regard for the interests of stakeholders, and
should they have regard for the interests of stakeholders? ..............................................6
3.2 Does the current legal framework encourage or discourage directors to have regard
for the interests of stakeholders, or should revisions be made to the legal framework to
require, enable or encourage directors to have regard for the interests of
3.2.1 Corporations Act............................................................................................................9
3.2.2 Principles of Good Corporate Governance and Best Practice Recommendations11
3.2.3 Australian Standards on corporate governance and responsibility........................12
3.2.4 Additional voluntary (and mandatory) standards on corporate governance and
responsibility for banks .....................................................................................................12
3.3 What alternative mechanisms, including reporting requirements, may enhance
consideration of stakeholder interests? Should approaches in other countries be
adopted or adapted for Australia? .....................................................................................15
4. Conclusion ---------------------------------------------------------------------------------------- 19
5. Appendix 1: Examples of corporate responsibility within Australia’s banking
industry ------------------------------------------------------------------------------------------------ 20
5.1 Financial literacy.............................................................................................................20
5.2 Financial inclusion.........................................................................................................21
6. Appendix 2: Snapshot of corporate responsibility in other jurisdictions-----23
6.1 European Union..............................................................................................................23
6.2 United Kingdom..............................................................................................................23
6.3 United States...................................................................................................................25
PJC on Corporations and Financial Services
Inquiry into Corporate Responsibility
1. Executive summary
The Australian Bankers’ Association (ABA) welcomes the opportunity to provide comments
to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into
Corporate responsibility is increasingly being placed on the public agenda as being a
necessary part of good business management practice that should be a driving factor of
corporate strategy. Concurrently, an increasing number of companies are recognising that
corporate responsibility is an important part of their brand or corporate identity.
The banking industry in Australia is recognised for its leadership in the area of corporate
responsibility. Many banks acknowledge corporate responsibility and have adopted
programs and practices that demonstrate their commitment to social and environmental
performance, as well as financial performance. Banks that have adopted corporate
responsibility have recognised it as a driving factor for being able to distinguish themselves
through effective forms of stakeholder engagement.
The high level of innovation, creativity and competition regarding corporate responsibility
is reflected in many banks introducing internal programs and undertaking extensive
external programs and some banks producing an annual CSR-type report, along with their
annual report and financial statements. This voluntary commitment by Australia’s banks
reflects the growing importance of responding to the expectations of shareholders,
customers and the community.
In relation to this inquiry, the ABA makes the following points:
1. The ABA believes that corporate decision makers already have the ability within the
current legislative framework to have regard for the interests of shareholders and
other stakeholders by exploiting corporate opportunities that are in the long-term
interests of the company.
2. The ABA believes that directors should have regard for the short-term and long-term
interests of the company to ensure sustainable economic growth and increased
profitability for the company. However, corporate decision making should involve
determining relevant interests, based on the nature of the business activities, the
different business models and industry sectors, and the different operational issues
impacting their stakeholders. Companies should be responsible for their decisions as
they impact on stakeholders, as these decisions will inevitably impact overall financial
and operational performance.
3. The ABA does not support Government intervention through additional regulation that
prescribes that directors must take account of the interests of other stakeholders.
Legislative amendment that prescribes a directors’ duty requiring directors to take
account of other stakeholders as part of their statutory duty to the company could
confuse or dilute the role of directors. A statutory obligation could also have adverse
consequences for innovation in corporate responsibility practices, and therefore is
impractical, unnecessary and potentially counterproductive.
4. The ABA does not support codification of triple bottom line reporting requirements or a
legislative amendment that prescribes a reporting framework. A prescribed reporting
framework could limit the value of such disclosure as well as limit the company’s ability
to determine what best suits its reporting needs and the needs of its shareholders and
AUSTRALIAN BANKERS’ ASSOCIATION 2
Corporate responsibility that reflects mere compliance does not promote responsible
business practices, an ethical corporate culture or long-term sustainable performance.
Mandating corporate responsibility will not necessarily result in better outcomes, as
prescribing requirements in addition to the existing framework is likely to result in a ‘tick
the box’ approach, which is not desirable and defeats the spirit and intent behind the
concept of corporate responsibility.
The value of corporate responsibility is in the voluntary adoption of innovative business
practices that reflect flexible and strategic business judgements by the Board in terms of
financial considerations (such as allocating capital and other resources) and social and
environmental considerations. It is important for the Board to retain discretion in assessing
the interests of stakeholders to determine when, and to what extent, certain stakeholders
in particular circumstances may be impacted by the decisions of the company.
Australia’s banks have demonstrated that an important part of making corporate decisions
and developing competitive advantage is about delivering shareholder value through
business efficiencies and strategies that take account of broad shareholder and non-
shareholder interests. Corporate responsibility represents a perspective on delivering value
to shareholders, involving a corporate mindset that goes beyond current financial reporting
and internally focused governance and risk management to generating long-term
2.1 What is corporate responsibility?
Corporate social responsibility is a concept whereby companies integrate social
and environmental concerns in their business operations and in their interaction
with their stakeholders on a voluntary basis1.
There are many definitions of corporate responsibility, but the concept as expressed by the
European Commission is widely recognised. Corporate responsibility means not just
fulfilling legal obligations, but voluntarily adopting business practices that go beyond legal
and regulatory compliance by integrating business activities with a balanced response
regarding wider considerations for the environment, human and social capital.
Globalisation has created opportunities for companies, but has also placed increasing
demands on company brand and business reputation, which play an important role in a
competitive corporate environment. Consequently, shareholders and other stakeholders
are seeking greater disclosure of information, financial reporting and management
accountability; and companies are seeking greater knowledge, competencies, performance
and competitive advantage.
Essentially, the concept of corporate responsibility involves:
• Corporate behaviour voluntarily adopted that goes beyond legal obligations because
the decision makers have deemed that ‘responsible’ practices and behaviours can lead
to improved long-term performance;
• Corporate practices intrinsically connected to sustainable development because
businesses integrate financial, social and environmental considerations into their day-
to-day activities; and
Some commentators refer to the concept of “corporate social responsibility”. The ABA considers that arguably
corporate social responsibility and corporate responsibility are interchangeable terms. Definition of corporate
responsibility is contained in Green Paper. Promoting a European framework for Corporate Social Responsibility.
Commission of European Communities. Brussels. (p6)
AUSTRALIAN BANKERS’ ASSOCIATION 3
• Corporate culture incorporated into core business strategies because responsible
management of financial and non-financial risks is in the long-term interests of the
company as well as other stakeholders.
Companies that take account of stakeholder expectations and community attitudes in their
forward looking strategies can be better placed to address business risks and take
advantage of business opportunities that may arise. Australia’s banks recognise that
corporate responsibility is not merely in the domain of philanthropic activities, but is a
concept that broadly covers a wide range of corporate-community-employee activities that
deliver value to the community as well as returning value to the company and its
2.2 What is triple bottom line reporting?
Triple bottom line reporting essentially captures a broader range of measures of
organisational success – economic, environmental and social. Triple bottom line accounting
considers not just financial performance, but also environmental and social performance.
Triple bottom line reporting tends to be a qualitative summary of a company’s economic,
environmental and social performance over the previous year. In considering current
performance, companies may be encouraged to also report qualitative and quantitative
assessment of future trends, prospects and sustainability for the company. Triple bottom
line and sustainability reporting is often an opportunity for companies to share with
shareholders and other stakeholders information they already report under Federal and
State laws or industry standards.
Various business groups in Australia have released a number of publications about how
corporate Australia may introduce triple bottom line reporting2. In addition to guidance
issued by business groups, CPA Australia and the University of Sydney have been provided
with a $1 million grant from the Government to develop a framework for corporate
reporting of non-financial information3. The Australian Accounting Standards Board (AASB)
has also announced it is looking at developing a standard for triple bottom line
The G100 released Sustainability: A Guide to Triple Bottom Line Reporting in June 2003, highlighting the
importance of aligning triple bottom line reporting with the business strategy. The Business Council of Australia
(BCA) has released a number of documents on sustainable development and triple bottom line reporting, including
Towards Sustainable Development: How leading Australian and global corporations are contributing to sustainable
development (May 2001). The Institute of Chartered Accounts Australia (ICAA) has released its report Environmental
Management Accounting (EMA) containing case studies conducted in conjunction with Environment Australia and
EPA Victoria. The ICAA also has produced a number of articles and a regular Triple Bottom Line newsletter. CPA
Australia has published a number of research reports, including Triple Bottom Line: A Study of Assurance
Statements Worldwide and Sustainability Reporting Practices, Performance and Potential. CPA Australia is currently
conducting a sustainability and triple bottom line project to examine 'responsible investment' portfolio performance,
security market disclosure responses and corporate governance performance relationships.
Buffini, F (2005). Reporting framework. Australian Financial Review. 06 July 2005.
Gettler, L (2005). Making coming clean a standard practice. The Age. 28 July 2005.
AUSTRALIAN BANKERS’ ASSOCIATION 4
3. Australia’s banks and corporate responsibility
Increasingly, companies are coming to the
Our commitment to corporate responsibility is a
conclusion that businesses that take a broader view simple one - it is about doing the right thing;
of managing business risks can shape a healthier, behaving in a responsible, ethical and trustworthy
more productive corporate culture and thereby a manner; while acknowledging our major impact
sustainable and profitable company. Where a on society and accountability to our stakeholders.
company understands how its activities may impact This means ensuring we conduct our business in a
their key stakeholders and how their key way that meets our social, environmental and
economic responsibilities in an appropriately
stakeholders may influence their operations, this
can be part of the way a company manages its
internal and external governance. Where a Which is why underpinning our company's
company demonstrates its commitment to everyday activities with a rich set of business
continuous improvement of its corporate culture principles and commitments that ensure
and publicly discloses information about its transparency, fair dealing and the protection of
operations and its responsiveness to solve the interests of stakeholders is so important.
problems, this can strengthen the company’s [Westpac]
However, how companies, including banks will adopt corporate responsibility will, and
should, depend largely on their business model, their customers and other stakeholders.
Similarly, what performance factors are of most relevance will, and should, depend on the
operations of the company. Integrated corporate responsibility can be a strategic
investment and an instrument for management to understand the relationship between the
company and the shareholders and the relationship between accountability of directors and
long-term shareholder value.
Many companies have suffered significant losses in market value because they did not
anticipate or manage business risks. Comprehensive management of risks allows
companies to better use information and knowledge about the environment in which they
operate and therefore they will be better placed to prevent, minimise or recover from
losses in shareholder value.
Increasingly, companies face increased risk that successful business strategies will quickly
become obsolete, unless they are able to understand their operating environment and
translate this into business performance and a clearly articulated corporate culture.
Creating an ethical culture means instilling and maintaining a commitment to doing
the right thing, this time and every time - so much so that it becomes entwined in
the essential DNA of the firm … The firm's leadership must, of course, set the right
tone at the top, but this culture can't be limited to senior management, the
compliance department, and the aspirational wording of a corporate mission
statement. The culture must be learned, reinforced and shared by each and every
Some of the drivers of corporate responsibility for Australia’s banks include:
• Enhanced governance to respond to business risks: profiling and managing risks and
being able to anticipate and respond to emerging issues to improve operational
• Improved ability to understand business performance: benchmarking market position
and competitiveness against own targets and competitors to provide value to
Speech by SEC Chairman: Remarks before the Bond Market Association. William H Donaldson. Chairman
Securities and Exchange Commission. 20 April 2005. http://www.sec.gov/news/speech/spch042005whd.htm
AUSTRALIAN BANKERS’ ASSOCIATION 5
• Improved ability to attract and retain quality employees: enhancing employee
recruitment, retention and motivation;
• Improved ability to conduct a dialogue with stakeholders: delivering innovative
communications and managing investor and public relations;
• Better financial monitoring of resource allocation: categorising use of resources and
identifying new business opportunities;
• Greater profile for raising capital: disclosing to shareholders and reducing market
volatility in share price can translate into greater investor confidence and improved
opportunities for managing capital; and
• Enhanced market reputation: integrating transparent and accountable business
practices can translate into competitive advantage and better brand management.
From the banking industry perspective, corporate
responsibility harnesses these drivers and is
reflected in how banks set corporate objectives,
manage day-to-day operations, align activities The Commonwealth Bank Foundation seeks to
and behaviour with the expectation that banks encourage developments in education, in particular
the financial literacy skills of young Australians and
will operate in a safe and sound manner (and in
aims to create awareness, skill and understanding
compliance with applicable laws and regulations),
of the benefits of a more financially literate
and meet the obligation of accountability to community.
shareholders and other relevant stakeholders. It
is in the interests of the bank to enhance internal [Commonwealth Bank of Australia]
and external governance. A systemic failure to
respond to community expectations could
translate into additional legal and regulatory
obligations and increase costs of compliance.
Therefore, overall the benefit of corporate responsibility for Australia’s banks is in the
voluntary adoption of practices that reflect the banks’ corporate culture and demonstrate
how the bank seeks to engage with its shareholders and other stakeholders. If the
voluntary nature of corporate responsibility were removed, the likely result would be
corporate cultures that meet compliance obligations or make insincere commitments
simply to demonstrate conformance. Conformance necessarily would replace performance.
Corporate responsibility provides a way for
companies to consider broadly their operational
We have made a public commitment to build
activities and how to best represent their
trusted relationships with all of our stakeholders –
our customers, our people, our shareholders, our
corporate culture. Part of enhancing responsible
regulators, our communities and our suppliers – business practices and promoting disclosure of
as part of our corporate social responsibility financial and operating performance is to consider
strategy… This report is a tangible demonstration how best to communicate the prospects of the
that we will continue to strengthen our business company; not just how the company has
practices and lift the level of transparency and performed, but how it expects to perform over the
accountability of the National on issues that are long-term.
important to our stakeholders.
[“Corporate Social Responsibility
Report 2004”, National Australia Bank]
AUSTRALIAN BANKERS’ ASSOCIATION 6
3.1 Do corporate decision makers have regard for the interests of stakeholders,
and should they have regard for the interests of stakeholders?
Responsible management of a company inherently involves balancing short-term and long-
term performance with regard for those factors that determine the sustainability of the
company; such as consideration of the interests of shareholders and other stakeholders
who can have a significant impact on the successful operations of the company. Australia’s
banks recognise the importance of shareholders, other stakeholders and the wider
community in all aspects of the financial services business. Essential to the operation of
the banking business are employees, depositors, investors and consumers of financial
products as well as government and regulators that set the legal and regulatory regime for
Banking businesses would not exist without customers, and therefore customer
expectations can have a significant impact on the financial and reputational performance of
the bank. Emerging business models and distribution across various types of products and
services within the financial services industry means that without suppliers and distributors
the business would also not exist. Competition within the financial services industry means
that successful banks provide optimal conditions for their employees. Increasing legal and
regulatory obligations placed upon the financial services industry means that relationships
with Government are important. Few companies could disregard the interests of these
internal and external stakeholders for very long and continue to be a viable and profitable
The banking industry is strongly committed to stakeholder engagement as a part of
corporate behaviour. Therefore, the ABA believes that the current framework in Australia
already permits corporate decision makers to have regard for stakeholders in addition to
shareholders. Banks already have in place comprehensive corporate responsibility activities
and stakeholder engagement programs that acknowledge the importance of their
employees, customers, suppliers, the environment and the wider community.
The following provides a brief overview of some of these programs and activities.
Employees: Banks adopt people management principles that include career opportunities and
performance evaluation; assessment of employment policies; labour laws (including equal
opportunity and workplace diversity, occupation health and safety); training, learning and
development; grievance processes; work-life balance and flexible working arrangements;
competitive remuneration; protecting employee entitlements; work conditions that respect human
rights and freedom of association.
Customers: Banks adopt customer service principles that include respecting customer privacy;
product development and service delivery; equity and access to banking products and services
(including adoption of Disability Action Plans, financial inclusion responses, etc); transparency of
business; responsible marketing practices; customer advocacy, complaints and dispute resolution;
and socially responsible investing.
Suppliers: Banks adopt supplier management principles that include supply chain management;
sustainability performance; and human rights practices of third parties.
Environment: Banks adopt environmental management principles that include meeting or
exceeding environmental standards; resource usage; environmental risk factored into lending
practices; reporting on climate change, water and energy management; trading and market
environmental solutions; and awareness raising campaigns.
Community: Banks adopt community service principles that enhance social contribution such as
financial literacy; strategic partnerships (including with the community and welfare groups, not-
for-profit and non-government organisations); community advisory panels; and philanthropic
activities (including vocational training, support for socially and financially excluded people,
sponsoring sport and cultural events, charitable donations).
* The ABA notes that this overview is an amalgamation of general stakeholder engagement programs and corporate
responsibility activities and is indicative of practices across the banking industry; however, it may not reflect an individual bank’s
particular corporate responsibility practices.
AUSTRALIAN BANKERS’ ASSOCIATION 7
In addition to these programs and activities, some banks are preparing specialised reports
that align financial reporting with sustainability reporting to provide a more holistic view of
the banks’ economic, social and environmental issues as built into the banking business.
Other specialised reports provide details on how banks are responding to shifting business
demands, including changing workforce dynamics; accessibility of banking products and
services for regional/remote communities, people with disabilities, households with low
incomes, etc; increasing regulation of financial services; climate change; and socially
responsible investing. Essentially, reporting on corporate responsibility acknowledges
diverse stakeholder interests and how the banks are responding to these views.
Australia’s banks have been recognised
internationally and domestically for their
corporate responsibility leadership, as reflected in
ANZ is committed to enhancing the well-being and
the high ratings against corporate responsibility
prosperity of the communities where our people
performance of a number of indices, including the
live and work, and where our business operates.
Our involvement is underpinned by a simple Dow Jones Sustainability Index, FTSE4Good
aspiration to earn community trust. Index, Governance Metrics International Global
Governance Ratings, RepuTex SRI Index, St
[“Our Performance 2004”, ANZ] James Ethics Centre Corporate Responsibility
Index. These indices seek to measure the
performance of companies and their corporate
Corporate responsibility can contribute to a company’s competitiveness by enhancing
management accountability, transparency and resourcefulness as well as improving
business processes, procurement and distribution. However, while the ABA considers that
the interests of other stakeholders are key to business performance, the degree to which a
company may have regard for other stakeholders will depend on a number of factors; such
as the nature of their business activities, the different business models and industry
sectors, and the different operational issues impacting their stakeholders.
Therefore, it is reasonable that a company may, and should, have regard for the interests
of stakeholders in different ways, reflecting the importance of particular business activities,
the interests of shareholders and other stakeholders and the relationships between the
company, its business practices and the wider environment in which it operates.
The primary duty of a director is to act in the best
interests of the company and it is a matter for the
Board to determine, when, and to what extent, We are committed to making the communities in
stakeholder interests should be taken into which we operate better. To this end, we
have made significant contributions to financial
account. In this regard, it is important for each
education, youth education and community
company to consider: (1) to whom should the
development in Australia.
company be responsible, and (2) to whom should
the company be accountable. Importantly, what
is relevant and appropriate for a bank will be very
different to what is relevant and appropriate for a
The ABA believes that:
• Corporate decision makers in Australia already have regard for the interests of
stakeholders, as reflected in the wide range of activities in corporate Australia that can
be described as “corporate responsibility”. Therefore, the ABA disagrees with the
sentiment that directors and companies are only interested in maximising short-term
profits for shareholders at the expense of long-term performance and wider
AUSTRALIAN BANKERS’ ASSOCIATION 8
• Generally companies can only be successful in the long-term if they broadly take into
account their business impacts on their stakeholders. Companies should be responsible
for their decisions as they impact on stakeholders, as these decisions will inevitably
impact overall financial and operational performance.
It is the ABA’s view that taking into account the interests of shareholders and other
stakeholders is consistent with the existing statutory directors’ duties. Corporate
responsibility can attract customers, employees and investors as well as improve the
integrity of the bank and the banking industry more generally. However, banks should
have flexibility in how they determine to govern and manage themselves, disclose their
operational activities to the market and endorse responsible business practices. The wide
range of activities that banks are engaging in demonstrates that it is not possible to
legislate a single response to corporate responsibility.
Appendix 1 provides a summary of two
examples of corporate responsibility
At St.George, we believe that everyone should have behaviour within Australia’s banking
a chance to grow. That's why we strive to play a
industry: financial literacy and financial
positive role in the community by supporting charities,
the arts, sporting clubs, business programs and disaster inclusion. Both these areas provide
relief initiatives. We also recognise our important opportunities for banks to work in close
community function as a major employer and partnership with welfare and community
financial services provider.
groups to deliver better accessibility to
banking products and services, particularly
[St George Bank]
for the more disadvantaged groups within
The ABA notes that greater details on individual banks’ stakeholder engagement programs,
corporate responsibility activities and participation in various corporate responsibility
ratings will be provided in ABA member banks’ individual submissions to the inquiry.
3.2 Does the current legal framework encourage or discourage directors to have
regard for the interests of stakeholders, or should revisions be made to the
legal framework to require, enable or encourage directors to have regard for
the interests of stakeholders?
The objective of the law should be clear and without unnecessary burden that can stifle
corporate innovation, business opportunity and economic growth. The law should also be
responsive to today’s business and community needs and be capable of being flexible
towards tomorrow’s business and community expectations. The ABA believes the current
framework of legal and regulatory obligations, market rules, industry standards, codes and
industry practices in Australia enables and encourages directors and companies to have
regard for shareholders and other stakeholders.
Under both the Corporations Act and common law, directors have a duty to act in the best
interests of the company. In addition, to duties based on a directors’ fiduciary relationship
with the company, companies must also meet a wide range of Commonwealth, State and
Territory statutes regarding occupational health and safety, anti-discrimination, industrial
relations, equal opportunity, consumer protection and environmental impact as well as
adhere to international covenants.
Australian courts have successfully applied directors’ duties to different circumstances
and adopted the law where appropriate (for example, gradually increasing the standard
of care and diligence expected of directors as community expectations have increased).
Importantly, the existing law allows directors to consider the interests of stakeholders
other than shareholders … A fundamentally important issue is how directors balance the
interests of various stakeholders in the company and the role of the law in this process6.
Ramsay I (2005). Directors’ Duties and Stakeholder Interests. Company Director. 21 May 2005.
AUSTRALIAN BANKERS’ ASSOCIATION 9
In March 2003, ASIC v Rich, the New South Wales Supreme Court held that a court's role
in determining the liability of a defendant for their conduct as director is to articulate and
apply a standard of care that reflects contemporary community expectations. Therefore,
directors’ duties involve exercising care, skill and diligence in the best interests of the
company, that being the company as a whole, reflecting wider expectations.
3.2.1 Corporations Act
Under section 180(1) of the Corporations Act 2001 a director must exercise their powers
and discharge their duties with the degree of care and diligence that a reasonable person
would exercise. In addition, under section 181 a director must exercise their powers and
discharge their duties in good faith in the best interests of the company and for a proper
Section 180(2) provides that a director meets their duty of care and diligence where they
make a business judgement that is in good faith for a proper purpose (i.e. without material
personal interest), that they inform themselves about the subject matter of the judgment
to the extent they reasonably believe to be appropriate, and that they rationally believe
the judgment is in the best interests of the company.
Business judgment means a decision to take or not take action in respect of a matter
relevant to the business operations of the company. The “business judgment rule” was
introduced to protect directors in the exercise of their duties and to give directors
confidence to engage in entrepreneurial or informed decision-making that takes into
consideration the wider interests of the company and the company’s long-term
What does it mean to act in the best interests of a company?
A commonly held view is that acting in the best interests of a company is to act in the best
interests of the owners of the company (i.e. the shareholders). However, the statutory
obligation is that directors are to act “in the best interests of the company”. In fulfilling
their duty to the company, arguably directors must consider the interests of both existing
and future shareholders, and this means the long-term sustainability, not just short-term
profitability of the company. Broadly, this requires directors to balance the short-term and
long-term interests of the company as well as to consider the internal and external
governance of the company.
It is the ABA’s view that directors may make decisions in good faith and for a proper
purpose that substantially benefits the community, consumers and the environment.
Where there is lack of regard for the company or where no attention is paid to the
interests of the company's shareholders, then this would likely be a breach of the duties of
the Board. However, to ignore the interests of other stakeholders would also likely not be
acting in the best interests of the company, as disregard is likely to expose the company to
Do directors feel constrained in corporate decision making?
Acting in the best interests of a company does not restrict directors from focusing beyond
maximising short-term profits and shareholder wealth when making corporate decisions.
Indeed, taking a broader view that is not inconsistent with the interests of the company
that creates long-term value is indeed acting in the best interests of the company. Failure
to manage wider stakeholder interests may create adverse harm for the company.
Therefore, the ABA considers that the duties of directors to exercise reasonable business
judgement can enable and encourage directors to discharge a standard of care that takes
into consideration the interests of shareholders and other stakeholders.
AUSTRALIAN BANKERS’ ASSOCIATION 10
Is a legislative amendment to the directors’ duties provisions necessary?
A redefinition of directors’ duties is problematic. In determining how such a provision
might look, two fundamental questions need to be considered.
1. Is it appropriate for directors to be required to comply with regulations that guide what
are appropriate social causes for their companies?
2. What limitations would need to be imposed to ensure that shareholders and investors
are not discouraged from placing their capital with corporates?
Whether directors’ duties should continue to be defined in terms of the best interests of
the company or whether duties should be statutorily widened to other stakeholders with
potential for redress if their interests are not being served must be considered in terms of
existing business practices by corporate Australia within the current legal and regulatory
The ABA makes the following points:
• While in law it may be that directors’ duties are to the company (the existing and
future shareholders), in practice with the day-to-day management of the company,
directors are already considering a wide variety of interests when making strategic and
• If the proposition that shareholder interests can only be served by maintaining a
standard of care that reflects “contemporary community expectations” and taking into
account relationships with other stakeholders, then managing financial and non-
financial risks and disclosing the company’s consideration of its prospects for
performance means that directors and companies already have regard for the interests
of other stakeholders and have available mechanisms for disclosing their responsible
business practices to the market.
The ABA believes that company law affords ample latitude for directors and companies to
act responsibly vis-à-vis the environment and society generally. There are also other legal
and regulatory obligations, market rules, industry standards, codes and industry practices
that necessitate directors and companies having regard to stakeholder interests as part of
their duty to act in the best interests of the company. The long-term performance and
sustainability of the company requires prudent management of a wide range of business
risks. Failure to measure and manage financial and non-financial risks will inevitably
damage the company. Certainly as part of corporate decision making, the Board should
contemplate the business risk of not considering how the company may impact on its
internal and external stakeholders.
Would a legislative amendment confuse or dilute directors’ duties?
It is important for directors’ duties in company law to be drafted so that it balances
providing directors with certainty regarding their obligations, yet allows the law to respond
to changing business and community needs. It is the ABA’s view that section 181(1) of the
Corporations Act is broad enough to allow directors to have regard for the interests of
shareholders and other stakeholders, yet is clear in that it provides that a director has a
duty to act in the best interests of the company. Amending directors’ duties to incorporate
a direct duty to wider stakeholders may result in directors being unable to make efficient
and effective corporate decisions and may unduly restrict the way in which corporate
decisions are made, to the detriment of shareholders and other stakeholders. It is also
important for the courts to interpret the provisions to reflect the nature and effect of the
principles upon which the duties are based.
AUSTRALIAN BANKERS’ ASSOCIATION 11
Would a legislative amendment change company behaviour?
It is uncertain whether a different legal provision will lead directors to making decisions
differently to the decisions they make now. Creating a legal requirement to take account
other stakeholder interests creates a risk that the legitimate decisions of the Board and
management of the company may be challenged by small minority interests that are not in
the interests of the company or its primary responsibility. There is a risk that directors will
be distracted by vexatious litigation instead of concentrating on managing the company in
the interests for which they have been given permission to do so by their owners. A
statutory obligation may in fact narrow the focus of the Board and management of the
company creating inefficiencies in company operation and management; ultimately to the
detriment of shareholders and other stakeholders.
The ABA does not support an amendment to the directors’ duties to include a duty to also
act in the best interests of other stakeholders. Nor does the ABA support an amendment
that explicitly permits directors to take account, where appropriate, of the interests of
other stakeholders. Such a general response is likely to have a number of significant
• Diluting responsibility rather than clarifying responsibility of directors;
• Stifling corporate innovation rather than encouraging ‘enlightened shareholder value’;
• Confusing adoption of progressive ways of managing diverse shareholder and
stakeholder interests; and
• Generating conformance rather than performance.
3.2.2 Principles of Good Corporate Governance and Best Practice
The best practice recommendations are not prescriptions. They are guidelines,
designed to produce an efficiency, quality or integrity outcome. This document does
not require a 'one size fits all' approach to corporate governance. Instead, it states
aspirations of best practice for optimising corporate performance and accountability in
the interest of shareholders and the broader economy7.
Beyond the mandatory statutory obligations on corporate governance, pursuant to Listing
Rule 4.10, companies listed on the Australian Stock Exchange (ASX) are required to
comply with the ASX Corporate Governance Council’s Principles of Good Corporate
Governance and Best Practice Recommendations by providing a statement in their annual
report disclosing the extent to which they have followed the best practice
recommendations during the reporting period. Importantly, the best practice
recommendations focus on an “if not, why not” approach; where companies must identify
the recommendations that have not been followed and give reasons for not following them.
“Recognising the legitimate interests of stakeholders” (Principle 10) sets out that
companies have a number of legal and other obligations to non-shareholder stakeholders.
It also recognises that increasingly, the performance of companies is being scrutinised
from a perspective that recognises other forms of capital, such as natural, human and
social capital. This being the case, the ASX Corporate Governance Council has determined
that it is important for companies to demonstrate their commitment to appropriate
corporate responsibility practices. Companies are required to establish and disclose a code
of conduct to guide compliance with legal and other obligations to legitimate stakeholders.
Principles of Good Corporate Governance and Best Practice Recommendations. ASX Corporate Governance
Council. (p5). http://www.shareholder.com/shared/dynamicdoc/ASX/364/ASXRecommendations.pdf
AUSTRALIAN BANKERS’ ASSOCIATION 12
Furthermore, it suggests that directors have a responsibility to set the “tone and standards
of the company” and to oversee adherence to these standards. A code of conduct, which
states the values and policies of the company, can assist the directors in taking into
account the interests of stakeholders as well as complement the company’s risk
management practices. Importantly, the best practice recommendations refer to
“legitimate” stakeholders. Not all stakeholder interests will be relevant in all
circumstances, and therefore it is reasonable for directors to retain the discretion to
determine how best to balance the particular stakeholder interests.
In addition to Principle 10, the best practice recommendations identify the importance of
identifying and managing risk. “Recognise and manage risk” (Principle 7) sets out that
companies should establish a sound system of risk oversight and management and internal
control to identify, assess, monitor and manage risk and inform investors of material
changes to the company’s risk profile. The risk profile of a company should be a
description of the material risks facing the company, including financial and non-financial
matters. A structure for managing risks can enhance the environment for identifying and
capitalising on opportunities to create value and as such the concept of managing risk
takes on a wider perspective than merely managing financial risks, to also managing
operational risks. Importantly, the best practice recommendations refer to financial and
non-financial risk management, and that these risks will vary across different companies
and different industries.
The ABA believes that the best practice recommendations explicitly and implicitly require
listed companies to have regard for the interests of other stakeholders as demonstrated by
the conduct of the business, its operational activities and its risk management practices as
part of its corporate governance framework. Considering the breadth of financial and
operational risks inherently must involve a consideration of how the company interacts and
engages with its shareholders and other stakeholders.
3.2.3 Australian Standards on corporate governance and responsibility
In addition to corporate governance standards
that apply to listed companies as contained in the
The Charitable Foundation was established in 1981.
Each year the Adelaide Bank donates a percentage Corporations Act or ASX Listing Rules, Standards
of its profits to the Charitable Foundation after tax Australia has published a series of Australian
and dividend payments. The Bank also covers all Standards to assist all companies develop and
salary and administration costs. The Charitable implement effective corporate governance
Foundation raises additional funds from staff,
corporate supporters, individual donors and by
practices. The Australian Standards are non-
staging fundraising events and activities. prescriptive and have been designed to apply
across company-type; small or large, public or
[Adelaide Bank] private, profit or not-for-profit. AS 8003 was
published in July 2003 and provides guidance on
corporate social responsibility.
In addition, Standards Australia has published a number of other standards for business,
including risk management, compliance programs, OH&S, environmental management,
security management, organisational codes of conduct, etc, to assist companies to meet
their legal obligations as well as implement more broadly corporate governance structures
and responsible business practices.
3.2.4 Additional voluntary (and mandatory) standards on corporate governance and
responsibility for banks
For banks, the Corporations Act not only contains fiduciary duties for directors, but also a
statutory duty for the bank to ensure that its services are provided in an efficient, honest
and fair manner pursuant to section 912(A). Banks have additional conduct of business
obligations pursuant to their Australian Financial Services Licence and must have adequate
organisational capacities, competent responsible officers and risk management systems to
comply with the conditions of the licence and the financial services laws. Obligations to
AUSTRALIAN BANKERS’ ASSOCIATION 13
manage conflicts of interest also mean that banks must avoid, control or disclose any
conflicts of interest pursuant to section 912(A). Licensed financial service providers that
have a fiduciary relationship must act in the best interests of their clients. A similar
obligation to act in the best interests of clients is also contained in the Superannuation
Industry (Supervision) Act 1993.
In addition to conduct of business obligations, a bank must also meet certain prudential
requirements to be authorised to carry on banking business pursuant to the Banking Act
1959. Part of these prudential requirements is to meet certain corporate governance and
risk management standards. Directors and senior managers are also to meet certain
fitness and propriety standards. The Basel capital framework sets out a comprehensive risk
management methodology for retail and commercial banking business. Banks must have
adequate systems for managing credit risk, market risk and operational risk as well as
adequate capital to protect the business from these risks. The Basel Committee on Banking
Supervision has provided guidance on sound practices for managing and supervising
operational risk as well as sound corporate governance practices (based on the OECD
Principles of Corporate Governance).
Managing business risk, by having regard for internal and external risks, and maintaining a
prudent governance structure by having in place robust and transparent operational
practices, is an integral part of the day-to-day management of a bank. Reputational risk is
increasingly important for banking business. Effective governance practices are essential to
sustaining public trust and confidence in the banking system, which are critical to the
functioning of the banking sector and economy as a whole. The ABA considers that banks
are obligated to have regard for managing all risks to the business as part of their
prudential management and conduct of business. Understanding financial and operational
risks is part of a sound risk management system.
Code of Banking Practice
The ABA’s Code of Banking Practice was first Good community is good business. We believe our
business can only thrive in healthy communities
published in August 2003, with revisions and we are therefore committed to improving the
subsequently made in May 2004. The Code is prospects of the communities we serve. Our
voluntary8 and sets standards of good banking preferred approach is to talk to local leaders about
practice when dealing with people, who are, or their aspirations and concerns and see if we can
use our skills to improve their community's
who may become, individual and small business
prospects … Often this centres on the provision of
customers. The Code includes key commitments, banking and financial services, but we have also
general obligations, principles of conduct and been able to develop a range of initiatives designed
disclosures. The banking industry is dedicated to to help communities reach their potential.
continuously work towards improving the
standards of practice and service in the banking [Bendigo Bank]
industry. Within the Code is a commitment to act
fairly and reasonably towards customers in a
consistent and ethical manner.
Each member bank will maintain its own corporate culture and customer service protocols.
Banks have Customer Service Charters, and some banks have more specialised
procedures, such as Disability Action Plans, for addressing particular customer needs.
However, a customer-focused culture can generally be demonstrated by principles of:
• Respecting and knowing customers;
• Understanding customer's needs and offering suitable solutions;
• Delivering consistently high standards of service;
Details of the 13 banks that have subscribed to the ABA’s Code of Banking Practice are on the ABA website. http://
AUSTRALIAN BANKERS’ ASSOCIATION 14
• Working to build relationships with stakeholders (including customers, investors,
financial advisers, business partners and the community); and
• Acting honestly and prudently and complying with legal and regulatory obligations.
Acting fairly and reasonably towards customers in the banking industry is essential in
securing the long-term viability of the business. Therefore, acting in the best interests of
customers is consistent with being accountable for corporate actions in the broader
environment and community.
In addition to the Code of Banking Practice, member banks are also subject to the Uniform
Consumer Credit Code and, as applicable, IFSA’s Blue Book – Guidelines on Corporate
Governance for Fund Managers and Corporations.
The ABA believes that:
• Current statutory obligations and industry standards encourage directors to have
regard for the interests of shareholders and other stakeholders, where it is determined
that such interests are also in the interests of the company.
• Corporate decision makers are not constrained by the existing framework. The law
does not impede directors or companies from taking account of the interests of other
stakeholders. Fostering relationships with shareholders and other stakeholders is an
integral part of the existing legal, regulatory and corporate governance framework in
• Legislative amendment to prescribe a duty to require directors to take account of other
stakeholders as part of their statutory duty to the company could confuse or dilute the
role of directors, resulting in less efficient decision making to the detriment of
shareholders and other stakeholders.
• Government intervention could have adverse consequences for innovation and
creativity in corporate responsibility practices, and therefore is impractical,
unnecessary and potentially counterproductive.
The ABA does not believe there to be a systemic failure of corporate Australia to address
market and social forces by giving due consideration to the broader interests of the
company as part of corporate decision making. Legislative intervention is not required, nor
desirable, to enable or encourage directors and companies to have regard for the interests
of other stakeholders. Modern governance, commercial practices and business necessity
means that directors and companies already take into account wider interests in making
decisions about corporate strategy and actions.
Importantly, Australia’s existing framework
appropriately ensures that the approach to The Suncorp Group has a long history of
practices and reporting is scalable to supporting the communities it serves by sponsoring
company-type. Ultimately, attempts to events and providing much-needed assistance and
prescribe corporate responsibility will either support to charities. As well as direct company support,
Suncorp staff give freely of their time and expertise to
be too high level to provide practical guidance help charities such as the Youth Enterprise Trust, the
across the various industry sectors and Hear and Say Centre, the Queensland Cancer Fund and
various companies, and therefore the Salvation Army. This culture of helping and giving
unenforceable, or will be too complex and strengthens the bonds of goodwill between Suncorp and
prescriptive engendering a compliance based
response that is likely to narrow innovation in [Suncorp]
AUSTRALIAN BANKERS’ ASSOCIATION 15
Australia’s banks have played a significant role in leading developments with corporate
responsibility developments; in a voluntary capacity. The high level of corporate
responsibility activity by Australia’s banks demonstrates that Government intervention or
legislative amendment is unnecessary in order to promote responsible business practices
and responsible disclosure of those business practices.
3.3 What alternative mechanisms, including reporting requirements, may enhance
consideration of stakeholder interests? Should approaches in other countries
be adopted or adapted for Australia?
There are a number of triple bottom line or sustainability reporting frameworks; whether
that is a social impact report, stakeholder and community report, environmental impact
report, CSR report, sustainability report, etc. The Global Reporting Initiative (GRI)
Reporting Framework presents reporting principles and specific content indicators to guide
a company’s thinking about their sustainability performance and in the preparation of
sustainability reports9. The GRI guidelines are becoming the most commonly adopted set
of guidelines for reporting on corporate sustainability and are widely recognised with a
number of banks taking into consideration the GRI guidelines in their annual performance
reporting. The GRI guidelines also provide finance sector specific guidelines.
Notwithstanding the wide recognition of GRI, the
ABA believes that it is impractical to prescribe
HSBC is deeply conscious of its responsibilities to
the environment, believing that the needs of particular requirements for companies to report
today's society should not be fulfilled at the against the triple bottom line. It is reasonable to
expense of future generations, and that expect that companies will determine that some
sustainability is paramount. Executives and
aspects of economic, social and environmental
members of staff at all levels are responsible for
seeing that we can contribute to the ethos of reporting will provide a view of the operations of
sustainability. the company in its totality. However, it is
unreasonable to suggest that all companies will
[HSBC Bank (Australia)] have governance practices to report against all
possible criteria, nor responsibilities to all possible
It is important to recognise that for companies to deliver greatest value for all
stakeholders, a “one size fits all” approach does not adequately recognise the diverse and
complex needs of all stakeholders. A “one-size-fits-all” approach to corporate responsibility
or sustainability will not work due to the uniqueness of each business and the variation in
strategic approach across companies. The dynamics of the relevant industry, market
sector, operating environment, product or service means that each company is different.
The real and comparative influence of, and priority assigned to, varying stakeholder
interests will be different.
The Global Reporting Initiative (GRI) was established through the United Nations Environment Program (UNEP)
with the objective of enhancing the quality, rigour and utility of sustainability reporting. It is a multi-stakeholder
process and independent institution whose mission is to develop and disseminate globally applicable Sustainability
Reporting Guidelines. These Guidelines are for voluntary use by organisations for reporting on the economic,
environmental, and social dimensions of their activities, products, and services. The GRI principles include
transparency, inclusiveness, auditability, completeness, relevance, sustainability, accuracy, neutrality, comparability,
clarity and timeliness; and the GRI content includes vision and strategy, corporate profile, governance structure and
managements systems, performance (economic, environmental and social) indicators. The GRI incorporates the
active participation of representatives from business, accountancy, investment, environmental, human rights,
research and labour organisations from around the world. Started in 1997, GRI became independent in 2002, and is
an official collaborating centre of the UNEP and works in cooperation with UN Secretary-General Kofi Annan’s Global
Compact and is consistent with the OECD Guidelines for Multinational Enterprises. http://www.globalreporting.org/.
AUSTRALIAN BANKERS’ ASSOCIATION 16
The ABA believes that Australia’s framework is already broad enough to allow directors and
companies to have regard for the interests of other stakeholders and therefore
encapsulates corporate governance standards, corporate responsibility objectives and good
business practices that other jurisdictions are currently proposing or implementing to
enhance existing frameworks.
In the United Kingdom, the Company Law Reform Bill 2005 is currently being debated by
Parliament. This Bill seeks to introduce a concept of ‘enlightened shareholder value’. If the
Bill is passed it will introduce a duty for directors to have a primary obligation to benefit
shareholders, but explicitly states that this can be achieved by taking due account of other
In Australia, the current directors’ duties already reflect the principle of acting in the best
interests of the company, and as discussed above, the ABA considers that the existing
provisions already enable directors to exercise discretion in relation to other stakeholders.
It is the ABA’s view that the draft UK legislation seeks to implement practices for directors
that are already generally contained in the Corporations Act.
Furthermore, in the United Kingdom, listed
companies are required to discuss broad
strategic and forward-looking issues in their Our community investment strategy focuses
annual report as part of the Operating and our community efforts on assisting young people – the
nation’s future. In keeping with this policy, we have
Financial Review (OFR). The mandatory OFR
formed community partnerships in five major youth
obligation seeks to promote an effective areas: education, health, welfare, the arts and the
dialogue on key drivers of long-term company environment … We also have a range of staff initiatives
performance. The Accounting Standards to support our staff’s involvement in the community,
and we give our shareholders the opportunity to
Board issued a reporting standard for the OFR
support charities through our dividend donation
obligation in May 2005, which enables program.
directors to determine how best to structure
their review, in the light of the particular
[Bank of Queensland]
circumstances of the company.
In Australia, as introduced under the CLERP 9 amendments, an annual director’s report as
contained in the company annual report must include general information about operations
and activities. The new Management Discussion and Analysis (MD&A) obligation requires
directors to include quantitative and qualitative information about the operations and
activities of the company pursuant to section 299 of the Corporations Act. The MD&A must
contain information that shareholders would reasonably require to make an informed
assessment of the operations of the entity during the reporting year; the financial position
of the entity and any significant changes in the activities and the nature of the activities
during the reporting year; and the entity's likely operational developments and the
prospects of those operations in future financial years.
The introduction of this additional disclosure requirement is designed to maximise the
usefulness of annual reports to all users, particularly people who are unfamiliar with
reading and understanding financial reports, and is similar to the Review of Operations and
Activities disclosure that is required by ASX Listing Rule 4.10.17. The MD&A obligation
aims to ensure greater transparency and accountability within the company’s operations
and greater opportunity for all shareholders to take an informed role in the company
business and other stakeholders to take an interest in the business operations of the
company. In terms of reporting of financial and operational performance, it is the ABA’s
view that the existing MD&A obligation, coupled with other corporate governance
disclosure requirements, provides adequate scope for directors and companies to report
their operational and financial performance.
AUSTRALIAN BANKERS’ ASSOCIATION 17
The ABA notes that CPA Australia and the AASB have both indicated that they are
considering triple bottom line accounting standards for listed companies in Australia. Any
Government intervention or legislative amendment that pre-empts the findings of the triple
bottom line accounting discussions would be amiss. The ABA considers that it is preferable
to allow reporting to evolve rather than mandating format and timing of reporting through
Appendix 2 provides a snapshot of some approaches and thinking regarding corporate
responsibility in other jurisdictions.
Notwithstanding, the ABA believes there may be an important role for the Government and
the business sector to further develop responsible business practices across Australia.
The ABA suggests the role for Government could be threefold:
• Endorsement and adoption of international covenants to further promote human rights,
social welfare and environmental management in the interests of Australia’s
participation in the global community;
• Encouragement of corporate responsibility among Australian and foreign companies
operating in Australia through business and community forums in the interests of
raising awareness of how corporate responsibility may be relevant across industry
• Facilitation of ‘good for business’ messages about corporate responsibility by
conducting research into the contribution of corporate responsibility to long-term
sustainability and competitiveness of companies as well as sponsoring awards
programs to recognise excellence in corporate responsibility practices.
Corporate responsibility is not simply the space of large corporates or listed companies – it
is about responsible business practices; “business responsibility”. A corporation is only one
way a business can structure itself. Indeed, corporate governance should also be “business
governance”. Therefore, it is important for the Government to endorse, encourage and
facilitate responsible practices across all businesses, considering the nature and scale of
their business operations.
The ABA suggests the role for the business sector is to work to bring consistent recognition
of corporate responsibility across their industry through competitive market driven
responses to shareholder and other stakeholder interests. For example, a number of
Australia’s banks are involved in the United Nations Environment Program Finance
Initiative (UNEP FI), a global partnership between the United Nations Environment
Programme (UNEP) and the private financial sector. UNEP FI works with over 200 financial
institutions who are signatories to the UNEP FI Statements, and a range of partner
organisations to develop and promote linkages between the environment, sustainability
and financial performance.
The ABA notes that an Australian bank is the current Chair of the UNEP FI Steering
Committee. Its current work program is working on a number of key projects, including:
• Climate Change: focusing on carbon finance, national and international policy and
regulation debates, and renewable energy.
• Investment: exploring how material social, environmental and governance
considerations can best be incorporated into investment practice.
• Sustainability management and reporting: developing GRI Financial Services Sector
supplement (environmental performance); building the business case for sustainability
management and reporting in emerging economies.
AUSTRALIAN BANKERS’ ASSOCIATION 18
In addition, to enhance dissemination of information about responsible business practices
and to promote assessment of practices adopted by listed companies, the ABA suggests
that a similar initiative to the London Stock Exchange’s Corporate Responsibility Exchange
may provide a mechanism for the consistent collection and dissemination of information
about financial and non-financial performance of listed companies in Australia.
While this may assist smaller companies, it
should be noted that the banking industry Macquarie has provided support to community
currently discloses information about stakeholder programs … it does so in the simple belief that, as
engagement programs and corporate a company is a member of the society in which it
responsibility activities on individual banks’ operates, it follows that one of its important duties
is to work for the betterment of that community.
websites and in various corporate reports. We focus our resources on the core areas of
However, an alternative mechanism for the education, health care and research, welfare, the
collection and dissemination of corporate environment and the arts. Within these areas, we
responsibility information may supplement look for opportunities that are innovative,
genuinely responsive to the community's needs
existing dissemination practices. This market
and that also enable us to contribute our time and
driven approach may also give greater credibility expertise, as well as our financial support.
and rigour to benchmarks of corporate
responsibility practices. [Macquarie Bank]
The ABA would envisage that this mechanism
would complement existing reporting and disclosure practices and would not impose
additional regulatory burdens on listed companies. Experience in the UK suggests that
indeed this approach has reduced the burden on companies that receive many requests for
information from market analysts, benchmarking researchers, etc.
The ABA believes that:
• It is not possible to codify all expectations that other stakeholders, including the wider
community, may have of business, especially as these change over time. It is not
practical to codify or legislate a triple bottom line reporting framework.
• Additional regulatory measures that may impose additional compliance costs on
companies without delivering tangible value are unnecessary. Creating opportunities
for companies to be “good corporate citizens” needs to be reflected in a framework
that balances targeted restrictions in specified statute with flexibility to exploit
opportunities for governance and transparency.
• Australia’s framework that governs the behaviours of companies is already in place.
Indeed, this framework balances restrictions that are in the public interest and
flexibility for company’s to promote unique value propositions, create competitive
advantage and generate economic growth.
• Australia’s framework is arguably in advance of some other major jurisdictions, which
may be currently looking towards Australia’s approach regarding statutory directors’
duties and corporate governance standards. Some regimes are proposing and
implementing changes that more closely align company law and market rules with the
approach already adopted in Australia.
The ABA believes there are already adequate mechanisms for considering the interests of
stakeholders, including such mechanisms as legal and regulatory obligations, market rules,
industry standards, codes and industry reporting practices. Australia’s framework provides
a mix of voluntary and mandatory measures to promote responsible business practices and
consideration of wider stakeholders interests.
AUSTRALIAN BANKERS’ ASSOCIATION 19
The ABA believes the existing framework of legal and regulatory obligations, market rules,
industry standards, codes and industry reporting practices enables directors and
companies to take into account the interests of shareholders and other stakeholders in
their corporate decision making. Therefore, the ABA does not believe that it is necessary
for the framework to be amended in Australia.
The value of corporate responsibility is in its voluntary nature, lifting best practices across
the business sector. Attempts to codify or regulate will only stifle innovation and creativity
of companies in balancing the interests of various stakeholders. A prescribed obligation will
not encourage companies to adopt the ‘spirit of the law’, but merely comply with the black
letter of the law. In addition, the value of reporting on social and environmental
performance, as well as financial performance, is in the ability for a company to determine
what best suits its reporting needs and the needs of their shareholders and stakeholders.
Existing disclosure frameworks allow flexibility for companies to report those aspects of the
business of interest to shareholders and other stakeholders as reflecting the relationships
they have with their shareholders and other stakeholders.
The ABA suggests that the role for public policy in enhancing corporate responsibility
across industry sectors is in promoting the transparency of credible corporate responsibility
across business and the wider community. Disclosure of responsible business practices
means that companies are accountable for the way they operate, how they manage
corporate resources, and how they interact within the economy. Companies are part of the
community; therefore their long-term sustainable operation enhances shareholder value
and community value. Furthermore, it is the ABA’s view that that a director that is not
responsive to the broader interests of the company will expose the company to a number
of business risks.
However, the over-emphasis on conformance, rather than performance, is already evident
with the significant changes recently made to the corporations and financial services laws.
Further regulation of companies or ambiguity for directors can actually impede the benefits
of corporate responsibility; that is, the flexibility to deliver real outcomes that are relevant
to the all stakeholders of the company.
Building shareholder value through defined corporate strategies and by making voluntary
commitments that go beyond regulated corporate requirements, may not just contribute to
a better society, but can also lead to innovative practices for sustainable economic growth,
increased profitability for companies and enhanced investor confidence. Australia’s banks
recognise the importance of corporate behaviour that reflects responsible business
practices, corporate accountability and transparency and thus are recognised for their
leadership in corporate responsibility amongst corporate Australia.
Australian Bankers’ Association
11 October 2005
AUSTRALIAN BANKERS’ ASSOCIATION 20
5. Appendix 1: Examples of corporate responsibility within
Australia’s banking industry
5.1 Financial literacy
Financial literacy is the ability to make informed judgements and effective decisions about
the use and management of money10. Australia’s banks are responding to issues of
financial literacy in various ways, ranging from research into the level of adult financial
literacy in Australia, development of financial literacy education for school-age children and
partnerships with financial counsellors and community groups to deliver financial literacy
training to low income families.
Some banks financial literacy programs include:
• An adult financial education workshop program facilitating training for financial
counsellors and community educators to assist people, particularly low-income
households, to build their financial skills and knowledge and make informed decisions
about their money. The program was developed in collaboration with a number of
financial counseling groups.
• A student banking program providing fee-free banking accounts to encourage young
people to save. The program is conducted in partnership with schools and teaches
young people the principles of banking and sound money management. A website
facility also offers young people objective and unbiased financial management
information on a range of important money management topics, including saving,
budgeting, borrowing, lending, jobs and money. The facility features a number of
interactive tools to enable more informed financial decisions.
• A student education program providing a resource for teachers to use as part of their
teaching modules to improve young Australians financial literacy. The program is
mapped to every state’s curriculum. It also includes a grants program for schools and
a national assessment tool for students so that they can identify aspects of their
financial knowledge that could be improved.
• A financial literacy curricula resource package providing support and assistance to
teachers to improve the knowledge, skills and understanding of their students in the
area of financial literacy. The curriculum resources apply across primary school-aged
and high school-aged students and have been developed with the assistance of the
NSW Department of Education and Training and community groups.
• An education workshop developing understanding of employees, customers and
members of the community around basic financial matters and advice. The workshop
includes information on basic financial literacy but specifically looks at how to apply
critical thinking to financial decisions, including activities on budgeting, ways of paying
off debt and the advantages and disadvantages of various credit, store and charge
card options, and where to go for help when they get into financial difficulty.
• An Indigenous community financial literacy program enhancing self-sufficiency through
developing family income, resource funds and business management skills. This
program has been introduced in collaboration with Government, local community and
Indigenous community groups.
Other financial literacy programs provided by banks include guides on using credit cards,
managing finances online and making banking easier for small business and older
Definition of “financial literacy” from the UK National Foundation for Educational Research, 1992.
AUSTRALIAN BANKERS’ ASSOCIATION 21
The ABA’s financial literacy program involves three key areas:
• Information dissemination program: objective to enhance distribution and delivery of
existing and new materials in collaboration with partners.
• Awareness and Access program: objective to increase awareness and access to ABA
and banks’ own financial literacy materials and programs.
• Materials development program: objective to continue to develop generic materials
and resources to promote ‘responsible spending leadership’.
This program seeks to build on the work of ABA member banks and advocate the
importance of financial literacy within the banking industry. Some highlights of the
program include the ‘Broadening Financial Understanding Workshop’ and the ‘Smarter’
booklet series (‘Smarter Banking: Making the most of your money’; ‘Smarter Banking:
Make credit work for you’; and ‘Smarter Super: Make the most of your retirement’).
In addition to individual financial literacy initiatives, the ABA and some member banks are
working closely with the Government’s Consumer and Financial Literacy Foundation.
5.2 Financial inclusion
Financial inclusion aims to address financial exclusion, which is the lack of access faced by
the most needy members of the community to low-cost, fair and safe financial products
and services from mainstream financial services providers11. Financial inclusion programs
seek to assist low-income consumers address issues such as low savings levels,
unsustainable levels of personal debt and financial stress. Australia’s banks are responding
to issues of financial exclusion in various ways, including research on the size and nature
of financial exclusion (seeking to address the needs of those excluded from mainstream
financial services) and development of programs that assist low income consumers save,
manage their debt obligations and deal with financial hardship.
Some banks financial inclusion programs include:
• A matched savings program to assist low income families save money for their
children’s education by matching every dollar saved for the purpose with $2, up to a
maximum of $2000. The program was developed in conjunction with a welfare
organisation and has been extended through an additional welfare organisation
• Micro-credit schemes and no interest loan schemes pooling resources and returning to
the community to assist people on low incomes. A number of banks have developed
programs in partnership with Government, welfare organisations, community groups
and consumer groups. For example:
- Community development finance programs involve small loans for enterprise
- Micro-credit schemes involve making loans of between $300 and $1000 to
disadvantaged people to obtain access to funds for essential personal and
household goods (e.g. white goods). In addition, the scheme provides people with
basic financial planning and budgeting advice.
Definition of “financial inclusion” from research conducted by Chantlink Associates for ANZ, 2004.
AUSTRALIAN BANKERS’ ASSOCIATION 22
• A “Low Interest Loan” program involves making loans of between $800 and $3000 to
low income consumers at a fixed rate. These loans provide affordable credit for
the purchase of essential household goods and services. In addition, the program
assists consumers to establish a credit rating and gain entry into the mainstream credit
system. Loans are tailored to the needs of people on low incomes who are currently
using ‘payday’ lenders and other fringe credit providers. Successful applicants for the
low interest loan program are monitored by dedicated officers that, throughout the
loan process and repayment period, offer support and access to information and
• An Indigenous community and regional banking program assisting local community
representatives to help community members in opening bank accounts to receive
financial entitlements. The program has been designed to support individuals with
limited English ability and has been implemented in partnership with Indigenous
community groups. The program has also conducted research investigating lending on
communal land. The program seeks to assist with strategic management of Indigenous
land assets in a culturally appropriate manner to generate sustainable financial
outcomes for the local community.
• Low fee basic bank accounts and low interest credit card products involve providing
access to banking products and services that minimise the impact of transaction costs
for disadvantaged and low income households.
Banks stakeholder engagement programs and corporate responsibility activities aim to
help build social capital and empower local communities. Activities designed by banks to
assist in addressing problems with financial exclusion are break even products seeking to
make a difference for people that may otherwise not be able to access credit for household
necessities. Importantly, these programs have been able to progress and evolve in a
competitive banking sector environment.
For further information on the ABA’s financial literacy program and member banks financial
literacy activities and stakeholder and community programs, see
http://www.bankers.asn.au or individual banks’ websites.
AUSTRALIAN BANKERS’ ASSOCIATION 23
6. Appendix 2: Snapshot of corporate responsibility in other
The following outlines some recent developments in other jurisdictions in relation to
corporate responsibility. The ABA believes that generally Australia already has in place a
framework that is comparable with the principles of these other jurisdictions. Indeed, in
some respects these other jurisdictions are looking to Australia’s framework.
6.1 European Union
The European Commission published its Green Paper Promoting a European Framework for
Corporate Social Responsibility in July 2001. Following, the European Commission issued
the basis of the European Strategy Corporate Social Responsibility: a business contribution
to Sustainable Development in July 2002. As part of the strategy a multi-stakeholder
forum was established in October 2002 to promote transparency and convergence of CSR
practices and instruments. A report is expected containing results and recommendations
for further action.
In addition, on 28 October 2004, the European Commission announced a number of
amendments to the EU’s Accounting Directives to establish the responsibility of directors
for financial and key non-financial information and to require listed companies to publish
an annual corporate governance statement. The Commission considers that companies
that perform well tend to be well-governed and that investors need transparency on
corporate governance to make informed investment decisions.
6.2 United Kingdom
Under company law in the United Kingdom, directors are explicitly instructed to consider
the interests of the company’s employees, as well as its members. A listed company in the
United Kingdom may be subject to a number of statutory and voluntary corporate
The original UK best practice guide to corporate governance was published in 1992
following the ‘Cadbury Report’.12 This was revised with amendments, such as by Greenbury
(executive and director compensation) and Turnball (internal controls and risk
management) and most recently Higgs13.
The Combined Code on Corporate Governance first became effective for listed companies
reporting in 1999. In July 2003, the Code was amended to incorporate some of the
recommendations of good practice contained in the ‘Higgs Report’. In particular, the Code
sets out a requirement for the Board to set the company’s values and standards and
ensure that its obligations to its shareholders and others are understood and met. The
London Stock Exchange (LSE) considers that while the Code does not directly refer to
corporate responsibility, it falls squarely within the principle that the board should set
values and standards to ensure obligations to others (non-shareholders) are met.
Listed companies in the United Kingdom are required to discuss broad strategic and
forward-looking issues in their annual report as part of the Operating and Financial Review
(OFR). The mandatory OFR obligation seeks to promote an effective dialogue on key
drivers of long-term company performance. Operating and financial reporting elements of
the OFR include performance in the period, returns to shareholders, dynamics of the
Report of the Committee on the Financial Aspects of Corporate Governance. Committee on the Financial Aspects
of Corporate Governance. (“Cadbury Report”). 1992. London.
Review of the Role of Effectiveness of Non-Executive Directors. (“Higgs Report”). 2003. London.
Internal Control: Guidance for Directors on the Combined Code. (“Turnball Report”). 1999. London.